October 13th, 2025

The federal government shutdown has stalled the publication of several important labor market reports, leaving analysts, economists, and the Federal Reserve more dependent on private-sector data to assess hiring trends and the overall balance between employment and inflation.

Although private reports differ in methodology, they generally align in showing that the labor market is cooling while job opportunities for new hires remain tight—consistent with the last official government figures.

Just before the Oct. 1 shutdown, the Bureau of Labor Statistics released its Job Openings and Labor Turnover Survey for August, which showed a hiring rate of 3.2%. That marks the slowest pace of hiring since 2011, apart from the temporary dip during the onset of the pandemic in April 2020.

The Bureau’s monthly employment report, normally issued on the first Friday of each month, was postponed for September, making ADP’s payroll data the primary substitute.

ADP, which manages payroll services for roughly 26 million private-sector workers, estimated that private employment dropped by about 32,000 positions in September—the third decline in the past four months.

Since 2022, the correlation between BLS and ADP data has been roughly 78%.

Another source of insight is the Institute for Supply Management’s monthly Purchasing Managers Index (PMI), which tracks employment sentiment among manufacturing and service firms. While the PMI doesn’t provide job counts, it does indicate whether companies are expanding or reducing staff.

Both the manufacturing and services PMIs signaled ongoing declines in employment, though at a slower pace in September. Manufacturing employment contracted for the eighth straight month, with the index improving to 45.3 from 43.8 in August—still below the 50 threshold that indicates growth. The improvement stemmed mainly from more firms reporting increases in hiring (11.1% versus 9.4% in August), even as 24.4% said they cut jobs. Roughly two-thirds reported no change in staffing levels.

Job losses were less pronounced in the service sector. Only 16% of respondents said they reduced staff, while 12.1% reported new hires, up from 10.3% the previous month. The services employment index rose modestly to 47.2, marking a fourth straight month of contraction.

Despite the weakness, the PMI results included some encouraging signs: new orders in services continued to grow, and manufacturing production returned to expansion territory after falling in August.

However, both sectors continued to see rising input costs, suggesting that a period of “stagflation”—where inflation stays high while job growth slows—remains possible.

The shutdown’s furlough of about 750,000 federal workers and 150,000 voluntary retirements will likely appear in upcoming jobs data. Meanwhile, large private companies have largely avoided broad layoffs, helping stabilize employment and support consumer spending.

Even though ADP reported a net loss in jobs overall, firms with more than 500 employees actually expanded payrolls by 33,000 workers, or 0.13%, in September, while smaller businesses continued to trim staff.

Looking Ahead

Until federal reporting resumes, the Federal Reserve will rely heavily on private data to weigh risks to the labor market against ongoing inflation pressures.

The last government inflation data, released shortly before the shutdown, showed prices up 2.7% in August from a year earlier, with core inflation at 2.9%.

With inflation still running well above the Fed’s 2% goal, policymakers face significant uncertainty in determining how best to balance employment stability with price control.

Short-Term Treasury Borrowing

The U.S. Treasury has increasingly relied on short-term bills to finance record borrowing needs, a strategy that lowers near-term funding costs but raises long-term vulnerabilities. By issuing more short-term debt, the Treasury avoids pushing up yields on 10- and 30-year bonds, keeping overall borrowing rates contained even as gross issuance exceeds $1 trillion per quarter.

However, this approach comes with a rising rollover risk. Treasury bills mature quickly, requiring constant refinancing. With interest rates still elevated, any further increase would immediately raise federal interest costs—now running at over $1.1 trillion annually, or 3.8% of GDP, the highest since World War II.

The policy has also disrupted money markets. High bill yields above 5% have lured investors away from the Fed’s overnight reverse repo facility (RRP), shrinking balances from $2.2 trillion in early 2023 to under $300 billion. As the RRP buffer disappears, bank reserves—currently around $3.4 trillion but trending lower—become the next line of defense, heightening the risk of liquidity strain reminiscent of the 2019 repo market turmoil.

In the bond market, heavy bill issuance has anchored the short end of the yield curve while tempering long-end pressure. Yet the Adrian-Crump-Moench (ACM) term premium has turned positive, signaling the possibility of an abrupt yield-curve steepening if investors demand higher compensation for long maturities.

From a fiscal standpoint, the Treasury’s dependence on short-term financing leaves the U.S. highly sensitive to rate shifts—with 60% of debt maturing within four years, every 1% rise in borrowing costs adds roughly $250 billion in annual interest expense.

Politically, Treasury Secretary Scott Bessent, once a critic of short-term issuance, has adopted it out of necessity to keep long yields in check and preserve market stability. But the trade-off is fragile: if growth and inflation keep rates elevated, debt service could spiral; if liquidity tightens, the Fed may have to intervene again.

Bottom line: The Treasury’s short-term funding strategy buys short-term affordability at the expense of long-term resilience. Investors should monitor bill issuance, RRP balances, and reserve levels as key indicators of when convenience could turn into systemic risk.

Fannie/Freddie 

Freddie Mac plans to widen an existing program that lets developers secure the terms of their permanent financing well before construction begins — a move expected to strengthen liquidity in the construction lending market.

Historically, the agency has offered this “forward commitment” or extended rate-lock feature primarily to projects with Low-Income Housing Tax Credits (LIHTCs) or those with significant affordable components but without tax credits. By year-end, Freddie is expected to make the option available to market-rate multifamily projects, allowing developers to lock in permanent loan terms years before stabilization.

Industry participants say the expansion could encourage more construction lending. With certainty that agency take-out debt will repay their construction loans, banks and private lenders may feel more comfortable extending credit.

“It should enhance liquidity in the construction debt market,” one lender said. “It lets banks be a bit more aggressive because it reduces risk on the construction side.”

While details have yet to be finalized, market sources expect the new version to mirror Freddie’s current affordable-housing structure. Borrowers typically pay origination fees for the forward commitment loan at the same time as their construction loan fees and are also required to fund an escrow account.

In return, Freddie commits to fund the permanent loan up to four years in advance, typically sizing it to a 1.25x debt-service-coverage ratio (DSCR) based on projected income. For LIHTC properties, the DSCR minimum can drop to 1.15x, enabling slightly higher leverage.

The take-out loan remains unfunded during the construction period, meaning developers pay no ongoing interest until conversion. Forward commitments are rarely canceled, given substantial breakage penalties and the risk of losing future Freddie Mac eligibility.

Because underwriting is based on expected performance rather than operating history, Freddie typically reserves the product for experienced sponsors with strong track records.

Fannie Mae has unified its capital-markets operations across both the multifamily and single-family divisions, part of a broader internal restructuring effort.

As part of the shake-up, the agency dismissed Sean Fallon, vice president and head of multifamily capital markets, along with Jim Noenickx, a senior director involved in credit pricing. The reorganization places Devang Doshi, currently senior vice president and head of single-family capital markets, in charge of the multifamily segment as well.

Fallon had led the multifamily capital markets group since April, following the departure of former head Dan Dresser. Industry insiders said Dresser’s exit was likely due to differing views with Kelly Follain, who had recently assumed leadership of Fannie’s multifamily business.

Fallon brought nearly four years of leadership experience at Fannie Mae, following earlier roles in fixed-income and municipal trading at Stephens and Raymond James Financial, as well as prior stints with Fannie and Riggs Bank. Noenickx, a 25-year industry veteran, had spent eight years as a senior director at the agency.

The recent leadership turnover has left many lenders puzzled, particularly given Noenickx’s strong reputation and expectations that Fallon’s tenure would be longer. Some observers suggested the changes might relate to the Biden administration’s ongoing discussions about a potential IPO of Fannie Mae and Freddie Mac, which could be prompting internal realignments.

Traditionally, Fannie and Freddie have maintained distinct leadership structures for their multifamily and single-family operations, each with separate executive teams, CFOs, and management hierarchies.

In a separate development, the Federal Housing Finance Agency (FHFA) — which oversees both agencies — announced plans to close Fannie and Freddie’s New York offices. According to media reports, the FHFA cited actions by New York Attorney General Letitia James, who prosecuted former President Donald Trump, as a factor in the decision.

Market participants said the closures are expected to have little operational impact, as the affected employees already work remotely on a full-time basis.

Report Review: Trepp Q2 Bank CRE Lending

Commercial real estate lending by banks continued to strengthen in the second quarter of 2025, extending the growth trend seen throughout 2024. Origination volumes rose to roughly $6 billion across Trepp’s bank consortium, with multifamily and office loans accounting for the largest shares. The steady pace of lending—despite policy uncertainty and economic headwinds—indicates that banks are gradually regaining risk appetite.

Credit quality remained broadly stable, and overall CRE delinquencies plateaued at around 1.94% for the third consecutive quarter. The office sector showed further improvement, with delinquency rates dropping more than 20 basis points to 6.13%, marking the third straight quarterly decline. Multifamily delinquencies also edged lower to 1.40%, while industrial and retail loans saw modest increases in delinquency.

Charge-off levels declined, particularly in the office segment, where cumulative charge-offs fell from $933 million in Q1 to below $800 million in Q2—signaling that distress may have peaked. Multifamily charge-offs also eased slightly after elevated levels earlier in the year. Lodging maintained the highest charge-off rate relative to balance size due to its inherently smaller loan base.

Criticized loans—those rated as higher-risk by banks—remained concentrated in large metros such as Washington, D.C., New York, and Dallas, though most markets recorded quarter-over-quarter improvement. Houston and Atlanta were exceptions, where criticized loan ratios increased due to refinancing challenges for aging office properties.

Looking ahead, Trepp expects the office sector to remain the most stressed as banks work through older, underperforming assets. Multifamily loan performance will likely diverge by market: oversupplied regions may see continued pressure, while high-demand areas with resilient rents should stabilize.

Overall, the Q2 2025 data suggests a turning point in the CRE credit cycle, with loan performance showing early signs of recovery and origination activity signaling renewed confidence in the sector.

Report Review: Deloitte 2026 CRE Outlook

The 2026 Deloitte Commercial Real Estate (CRE) Outlook highlights a cautiously optimistic yet challenging environment for the global CRE industry, shaped by macroeconomic volatility and policy uncertainties that are slowing the expected recovery. Drawing from a survey of over 850 global CRE executives across 13 countries, the report outlines key trends, challenges, and opportunities for the next 12 to 18 months, emphasizing the need for agility, strategic partnerships, and technological readiness to navigate the evolving landscape.

Macroeconomic and Policy Challenges

The CRE industry faces headwinds from macroeconomic factors such as limited capital availability, elevated interest rates, rising costs of capital, currency fluctuations, and shifting tax policies. These concerns, identified as the top issues by survey respondents, are particularly tied to difficulties in accessing CRE debt markets. The US Federal Reserve’s recent 0.25% interest rate cut in September 2025, with potential for two additional cuts by year-end, offers some relief, but borrowing costs remain high compared to 2022’s low of 3.9% (versus 6.6% in Q1 2025). This increase pressures debt-service coverage, especially for loans with floating rates or upcoming resets. Policy uncertainties, including unpassed US tax proposals like Section 899 and global trade policy shifts (e.g., Pillar Two regime), further complicate decision-making. Notably, international trade policies rank higher as a concern in Asia-Pacific, though less globally, reflecting regional variations in exposure to trade risks.

Sustained Optimism Amid Hesitation

Despite these challenges, the CRE sentiment index stands at 65, down slightly from 68 in 2024 but well above the 2023 low of 44, signaling persistent optimism. About 83% of respondents expect revenue growth by the end of 2026 (down from 88% last year), while 68% anticipate higher expenses. Expectations for CRE fundamentals—rental rates, leasing activity, vacancies, and cost of capital—are positive, with 65% forecasting improvements, though slightly less than last year’s 68%. Regional differences are notable: European respondents are the most optimistic (70% expect improvements), North Americans are more neutral (25% expect flat conditions), and Asia-Pacific leaders are cautious, with 19-20% anticipating worsening capital costs and availability.

Investment Trends and Market Dynamics

Global CRE investment is showing signs of recovery, with investment volumes rising year-over-year in Q1 2025 for the first time since mid-2022. The S&P Global property index outperformed broader equity indices, and private real estate has seen positive returns for three consecutive quarters. About 75% of respondents plan to increase real estate investments, citing benefits like inflation hedging (34%), diversification (26%), stability (15%), and tax advantages (14%). The US remains a top investment destination, followed by India, Germany, UK, and Singapore. However, regional performance varies: the Americas saw a 12% rise in property sales, while Europe and Asia-Pacific experienced declines of 15% and 27%, respectively, due to bond rate shifts and trade uncertainties. Alternative asset classes like data centers and logistics are top-ranked, driven by high demand and limited supply, while suburban and downtown offices are regaining favor due to low new construction and office-reentry trends.

CRE Debt Markets: Stress and Opportunity

The CRE debt market presents a dual narrative. Legacy loans face significant refinancing challenges, with over 50% of respondents reporting upcoming maturities and only 21% expecting to pay them off fully. Over $1.7 trillion in US commercial mortgages are at risk, compounded by “extend-and-pretend” strategies that delay resolutions. Conversely, new loan originations are rebounding, up 13% from late 2024, with tighter spreads and better terms. Alternative lenders, such as private credit funds, are driving this resurgence, accounting for 24% of US CRE lending volume in 2024. Traditional lenders, including banks and CMBS, are cautiously reentering, with relaxed underwriting standards signaling improving market health. Globally, 80% of European lenders and 25% of Asia-Pacific investors plan to increase loan originations, focusing on lower-leverage opportunities.

Strategic Alliances and AI Adoption

CRE firms are increasingly forming alliances to leverage expertise and scale. Partnerships, including joint ventures and co-investments with pension funds, sovereign wealth funds, and private capital providers, are rising as alternatives to traditional M&A, which 17% fewer respondents plan to pursue in 2026. These alliances target specialized sectors like data centers, health care, and housing, with larger firms (AUM > $15 billion) prioritizing operational expertise and smaller firms seeking market access. In AI, 19% of respondents are in early adoption stages, with 27% facing implementation challenges due to technical issues or lack of expertise. Targeted AI deployments in tenant management, lease drafting, and portfolio management are prioritized, with smaller, industry-specific models gaining traction over large, general-purpose ones. Data reliability and explainability remain critical hurdles, requiring robust risk management and human oversight.

Actionable Recommendations

Capital Agility: CRE leaders should maintain flexibility in capital allocation, focusing on resilient sectors like data centers, health care, and grocery-anchored retail, while conducting data-driven portfolio reviews to mitigate risks.

Debt Management: Proactively pursue new financing from alternative sources like private credit, recalibrate underwriting assumptions to account for higher rates, and stress-test portfolios for adverse scenarios.

Strategic Partnerships: Form alliances to access specialized knowledge and new markets, ensuring consistent data standards and compliance across partnerships.

AI Strategy: Prioritize targeted AI deployments, embed explainability in models, and build company-wide AI literacy programs to enhance leasing, underwriting, and operational efficiency.

Public-Private Collaboration: Engage with municipalities to explore opportunities in affordable housing and infrastructure, leveraging public-private partnerships.

Broader Context: Fiscal and Monetary Risks

The report also notes fiscal pressures from the US Treasury’s reliance on short-term financing, with 60% of debt maturing within four years, increasing sensitivity to rate hikes. High bill yields have reduced Federal Reserve reverse repo balances to under $300 billion, raising liquidity risks. A positive term premium signals potential yield-curve steepening, which could further impact CRE financing costs. CRE leaders should monitor these indicators to anticipate systemic risks.

Conclusion

The CRE industry in 2026 faces a complex but opportunity-rich environment. While macroeconomic and policy uncertainties may delay recovery, selective investments, strategic partnerships, and targeted AI adoption offer pathways to growth. By staying agile, managing debt proactively, and leveraging partnerships, CRE leaders can navigate challenges and capitalize on emerging opportunities in a dynamic market.

In Case You Missed It...

The latest Walker Webcast brought together Walker & Dunlop CEO Willy Walker and economist Peter Linneman for their 23rd discussion on the state of the economy and commercial real estate. The conversation—often candid and humorous—ranged from fiscal policy to housing and capital markets.

Economic Outlook and Data Gaps

Linneman opened on a more cautious note than usual, citing uncertainty caused by the government shutdown and a temporary lack of key data from agencies such as the Bureau of Labor Statistics. Until normal reporting resumes, he joked, “if you don’t have anything to do in the next three weeks,” implying investors should sit tight until more clarity emerges.

Federal Reserve and Rate Policy

Linneman expects the Federal Reserve to cut interest rates three times by the end of 2025, possibly beginning with another reduction in late October. He criticized the Fed for delaying moves partly to avoid appearing influenced by former President Trump, remarking that politics has played an outsized role in recent monetary decisions.

Housing Market Challenges

Turning to residential real estate, Walker challenged Linneman’s long-held view that the U.S. faces a 3.5 million-unit housing shortage. Linneman defended his position but emphasized that affordability—particularly the down payment barrier—is the real constraint, not income levels.
He noted that higher home prices require longer savings periods and argued that lifestyle choices among younger buyers—frequent dining out, travel, and delivery spending—further delay homeownership.

Foreign Investment Trends

On global capital flows, Linneman said foreign investors continue to buy U.S. assets not because of faith in America’s fiscal discipline, but because other nations present even greater risks. He likened this behavior to “teenagers complaining about their parents but still showing up for dinner”—a reluctant but consistent reliance on U.S. markets.

CRE Market Standouts

In reviewing Q3 performance from The Linneman Letter, Walker noted the absence of a clear “winner” market for commercial property investment. Still, office strength appeared in Miami, Charleston, and St. Louis, while St. Louis also led on the industrial side.
Linneman clarified that this refers to the broader metro area, not downtown, which has seen limited growth and new development. He advised investors to target markets with growth but limited new supply, though he cautioned such environments may benefit owners more than developers.

Key Takeaway

Linneman’s overarching message was one of guarded optimism: while the U.S. economy remains the “least ugly option” globally, data gaps, political noise, and affordability pressures are tempering his confidence. For investors, patience and selectivity remain critical in the current CRE landscape.

*Data from this weeks newsletter sourced from Costar, Federal Reserve data, Trepp, Green Street, Bloomberg, Tradingview, Walker Webcast